SIA Engineering's profit woes are here for the long haul

Industry headwinds are entrenched.

After SIA Engineering booked a 22.8% profit drop in the first quarter, analysts warn that the company’s woes are here for the long haul.

OCBC Investment Research said that the profit drop was “unsurprising” and was due to entrenched industry headwinds.

With an unsurprising lacklustre performance from its 1QFY16 results, we expect headwinds causing the weakness to persist at least in the near to medium-term.

“In our view, SIAEC is facing a structural issue where airlines are deferring maintenance checks with improved aircraft/engines designs and performances. The increase intervals between workshop visits are likely permanent changes, and until SIAEC is able to secure more ACS jobs to fill the gaps, weak revenue contributions are likely to sustain,” OCBC said.

“The extent to which tight cost management can help mitigate weak performances ahead is still limited in this labour intensive industry. However, we do note that SIAEC is likely to continue to pursue top-line growth in contributions from its Line Maintenance (LM) and Fleet Management Programme (FMP) segments to help mitigate overall weakness from ACS,” the report added.